What does 'subrogation' allow an insurer to do?

Subrogation is a fundamental principle in insurance that allows an insurer to pursue a third party that is responsible for causing a loss to the insured. When an insured individual makes a claim and the insurer compensates them for their loss, the insurer gains the right to “step into the shoes” of the policyholder and seek recovery from the party that caused the damage. This process ensures that the insurer can recoup the amount it has paid to the insured, thus maintaining the integrity of the insurance pool and preventing the insured from receiving a double recovery for the same loss.

In the context of the other options, changing the terms of the policy after a claim does not align with the definition of subrogation, as terms are typically set when a policy is issued. Issuing refunds to policyholders is not relevant to subrogation, which focuses on recovery from third parties, not alterations to financial transactions. Collecting premiums from multiple sources also does not relate to subrogation, as this concept is specifically concerned with recovery following a loss rather than the collection of premiums.